ECON 200 Business Cycle, Unemployment, and Inflation

The unit price and quantities for two goods for two years are shown in the table. Assume that consumers are purchasing 8 units of water and 10 loaves of bread. Also assume that Year 1 is the base year. The value of the market basket in Year 2 is $_______________.

46.00 (8*2.00=16.00; 10*3.00=30.00; 16.00+30.00=46.00)

For each year, calculate real income. Year Nominal Income CPI Real Income (dollars) 1 $45,000 100 $ 2 $47,250 103 $ 3 $48,650 107 $ 4 $49,800 110 $

Real Income 1 = $45,000 2 = $45,874 3 = $45,467 4 = $45,273 (Nominal Income/Consumer Price Index*100)

Match the group used to compute the CPI with the correct description Education and communication =

college tuition and telephone services

In the ________________ stage of the business cycle, prices may be pushed upward due to increases in resource utilization and income.

expansion

A country with more generous labor policies -such as extended or large unemployment benefits- tends to

experience a higher natural rate of unemployment.

If the CPI and the inflation rate calculated from it understate the inflation faced by retirees, then the purchasing power of retirees is

falling over time and retirees are becoming worse off.

Determine whether this person or group is unemployed and what type of unemployment it is. Emma recently quit her job in San Diego to move to St. Louis to be closer to friends and family. She is currently working with a local employment agency to help her find a new job. Emma is ______________________ unemployed.

frictionally

Determine whether this person or group is unemployed and what type of unemployment it is. Jenny was not satisfied with her job in a hospital, so she left the job to find a new job in a health clinic. Jenny is _______________ unemployed.

frictionally

Determine whether this person or group is unemployed and what type of unemployment it is. Juan recently graduated from college and is looking for his first job. Juan is ________________ unemployed.

frictionally

Match the group used to compute the CPI with the correct description. Other goods and services =

haircuts and funeral expenses

Match the group used to compute the CPI with the correct description Medical Care =

hospitals services and prescription drugs

Determine whether this person or group is unemployed and what type of unemployment it is. Liz was working at a textile plant. her employer now uses robots to do her job, and she is looking for another job. Liz is __________________________ unemployed.

structurally

Job-retaining programs of financial assistance to attend college can help the _________________ unemployment acquire new skills.

structurally

For the average worker in the United States

the higher the unemployment rate, all else held the same, the more unemployed people are looking for jobs, and the longer someone is likely to be searching for a position.

Determine whether this person is or is not in the labor force. George, who was laid off, is expecting to be rehired, but he is currently seeking a job in other firms as well. George is ___________________.

unemployed

The labor force is important because it is the basis for calculating the _____________________ rate.

unemployment

The Natural Bureau of Economic Research determines

when business cycles begin and end.

The labor force does not include

-individuals who are under the age of 16. -individuals who are institutionalized.

The unit price and quantities for two goods for two years are shown in the table. Assume that consumers are purchasing 8 units of water and 10 loaves of bread. Also assume that Year 1 is the base year. To the nearest whole number, the value of the CPI in Year 2 is __________________.

(60.00/46.00=1.304; 1.304*100=130.4; round to the nearest whole number=130)

Which of the following persons would NOT be considered unemployed? *A college student actively searching for a summer job. *A construction worker who has given up looking for work after 18 months without a job. *A college grad who has applied for many jobs. *A retiree actively looking for part-time work to supplement Social Security income.

-A construction worker who has given up looking for work after 18 months without a job. (The construction worker is a discouraged worker since he has given up looking for jobs. Discouraged workers are neither considered unemployed nor a part of the labor force.)

Indicate the order in which the U.S> Bureau of Labor Statistics calculates the Consumer Price Index. *An index is computed for the average market basket purchase by the typical consumer. *The relative importance, or weight, of the purchased goods and services is determined. *Data on detailed consumption habits are collected through interviews and weekly diaries.

1. Data on detailed consumption habits are collected through interviews and weekly diaries. 2. The relative importance, or weight, of the purchased goods and services is determined. 3. An index is computed for the average market basket purchased by the typical consumer.

The unit price and quantities for two goods for two years are shown in the table. Assume that consumers are purchasing 8 units of water and 10 loaves of bread. Also assume that Year 1 is the base year. To the nearest whole number, the value of the CPI in Year 2 is ____________.

164 (46/28=1.642; 1.642*100=164.2; rounded to the nearest whole number 164)

Labor force statistics are collected by the U.S. Bureau of _______________ Statistics.

Labor

The CPI is computed by the U.S Bureau of ______________ Statistics.

Labor

Between 1960 and 2000, the labor force participation rate increased. *True or False

True

When you sell a stock, you must pay taxes on the gain in value.

You must pay this tax based on the nominal change in value.

The Consumer Price Index (CPI) measures the ________________ price for a market basket of goods and services purchased by the typical consumer from one year to the next.

average

Economists define _____________ as a general increase in the price of goods and services.

inflation

We distinguish between nominal income and real income because receiving a salary increase is better than not getting one, but the additional dollars may not allow you to buy as many goods and services as last year, due to _______________.

inflation

Match the group used to compute the CPI with the correct description Apparel =

jewelry and sweaters

The _____________ rate of unemployment equals the sum of the frictional and structural unemployment rates.

natural

The number of dollars you receive for your labor is

nominal income.

In addition to the Consumer Price Index, the U.S. Bureau of Labor Statistics computes other ______________ indexes that are more applicable to other market participants.

price

Economists define inflation as a general increase in the ___________ of goods and services.

prices

Match the group used to compute the CPI with the correct description Recreation =

toys and admission tickets to sports events

If the unemployment rate was ________ percent, there would be no frictional unemployment and no structural unemployment.

zero

Determine whether this person is or is not in the labor force. Jim is without a job but is available to work and has actively looked for employment in the past four weeks. Jim is _______________________.

unemployed

The _________ Price Index does not include purchases of imported or used products, while the ___________ Price Index does account for them.

GDP; Consumer

Inflation represents a(n) __________________ in someone's ability to buy goods and services.

decrease

The causes of inflation are usually related to

-changes in the money supply. -economy-wide changes in demand or supply for goods and services.

The GDP Price Index

-is the broadest measure of prices in the economy. -consideres prices for all goods and services produced in it (excluding those in the underground economy).

From 1979 to 2013, real earnings decreased for those having only a high school education or less. Among the possible explanations for this trend offered be economists are

-technological change occurring in recent decades has increased the demand for people with more education. -globalization has helped those with greater education more than those with less education.

The economy has been more stable during the last 30 years because

-we now conduct economic policies that are more successful at avoiding recessions. -structural changes, such as computers and other technological advances, allow the U.S. economy to move towards greater stability.

The CPI is computed by the U.S. Bureau of Labor Statistics based on interviews with and weekly diaries of more than ________________ families around the country.

10,000

An economy operating at full employment does not employ ______________ percent of workers in the labor force.

100

The unit price and quantities for two goods for two years are shown in the table. Assume that consumers are purchasing 8 units of water and 10 loaves of bread. Also assume that Year 1 is the base year. The value of the CPI in Year 1 is ______________.

100 (28.00/28.00=1; 1*100=100)

The CPI represents more than __________________ categories of goods and services, each of which can be included in one of eight major groups

200

Which of the following individuals is unemployed? *Angela, who lost her job and is now looking for work. *Dan, who looked for a job for a year and then gave up. *Amy, who is a full-time homemaker. *Raymond, who is between jobs and is currently not looking for a new job.

Angela, who lost her job and is now looking for work.

Eight major groups of goods and services are included in the Consumer Price Index (CPI): 1. Food and Beverages (breakfast cereal, milk, coffee, chicken, wine, full-service meals, snacks) 2. Housing (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture) 3. Apparel (men's, women's, kid's clothes, jewelry) 4. Transportation (vehicles, airline tickets, gas, vehicle insurance) 5. Medical Care (prescription drugs, medical supplies, doctor's services, eyeglasses and eye care, hospital services) 6. Recreation (T.V., toys, pets and pet products, sports equipment, admissions) 7. Education and Communication (school tuition, postage, phone services, computers and accessories) 8. Other Goods and Services (tobacco and accessories, haircuts and other personal services, funeral expenses) Using the list of eight groups of goods and services, determine which major group of the CPI the following item belongs to. Diamond earrings for your grandmother. This is in the ___________________ category.

Apparel

An economic indicator known as the CPI is the

Consumer Price Index

An economic indicator used to measure the average price of a market basket of goods and services over time is the

Consumer Price Index

Eight major groups of goods and services are included in the Consumer Price Index (CPI): 1. Food and Beverages (breakfast cereal, milk, coffee, chicken, wine, full-service meals, snacks) 2. Housing (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture) 3. Apparel (men's, women's, kid's clothes, jewelry) 4. Transportation (vehicles, airline tickets, gas, vehicle insurance) 5. Medical Care (prescription drugs, medical supplies, doctor's services, eyeglasses and eye care, hospital services) 6. Recreation (T.V., toys, pets and pet products, sports equipment, admissions) 7. Education and Communication (school tuition, postage, phone services, computers and accessories) 8. Other Goods and Services (tobacco and accessories, haircuts and other personal services, funeral expenses) Using the list of eight groups of goods and services, determine which major group of the CPI the following item belongs to. An iPhone. This is in the _______________ category.

Education and Communication

Short-term fluctuations experienced in the economy due to changes in levels of economic activity

can vary in duration and severity.

Match the group used to compute the CPI with the correct description Food and Beverages =

chicken and milk

The market basket of goods and services used by the U.S. Bureau of Labor Statistics includes goods and services purchased by the typical _________________.

consumer

Determine whether this person or group is unemployed and what type of unemployment it is. Dan was recently laid off from his job. His boss told him that the slowing economy was to blame. Dan is ________________________ unemployed.

cyclically

Unemployment that results from workers searching and waiting for jobs is

frictional unemployment (Frictional unemployment results from workers searching and waiting for jobs)

Changing demographics as well as increases in worker mobility may generate additional ____________ unemployment and increases the ______________ rate of unemployment, all else held constant.

frictional; natural

If the unemployment rate was zero, there would be neither ______________ unemployment nor _______________ unemployment.

frictional; structural

Determine whether this person or group is unemployed and what type of unemployment it is. A group of workers at a furniture manufacturing plant quit their jobs because they want to live in another town. They start searching for work in the new town. These workers are ________________ unemployed

frictionally

Determine whether this person or group is unemployed and what type of unemployment it is. A skilled glass blower becomes unemployed when a new machine does her job faster. This is an example of _________________ unemployment.

structural

Determine whether this person or group is unemployed and what type of unemployment it is. Advances in technology make the assembly-line worker's job obsolete. This is an example of _________________ unemployment.

structural

Determine whether this person or group is unemployed and what type of unemployment it is. General Motors lays of 5,000 workers and replaces them with robots. These workers are ___________________ unemployed.

structurally

The Consumer Price Index is computed as

the Value of the market basket in year t/Value of the market basket in the Base Year*100.

The consumer price index (CPI) measures

the average price of a market basket of goods.

The inflation rate equals the

value of the CPI in the later year minus the value in the earlier year, divided by the value in the earlier year, and multiplied by 100.

The unit price and quantities for two goods for two years are shown in the table. Assume that consumers are purchasing 8 units of water and 10 loaves of bread. Also assume that Year 1 is the base year. The value of the market basket in Year 2 is $___________.

60.00 (8*2.50=20.00; 10*4.00=40.00; 20.00+40.00=60.00)

The unit price and quantities for two goods for two years are shown in the table. Assume that consumers are purchasing 8 units of water and 10 loaves of bread. Also assume that Year 1 is the base year. The value of the CPI in Year 1 is _______________.

100 (46.00/46.00=1; 1*100=100)

Hovana has a labor force of 150 million people, 15 million of whom are currently frictionally unemployed and another 5 million of whom are currently structurally unemployed. The natural rate of unemployment is __________%

13.3 (15 million + 5 million = 20 million; 20 million/150 million = 0.1333; 0.1333*100 = 13.33; round to one decimal point = 13.3)

Consider the country of Flickopedia, where 300 million people are of working age. Currently, 185.5 million workers are employed in Flickopedia, and 9.5 million workers are unemployed. What is the size of Flickopedia's labor force? _________ million people.

195 (185.5 + 9.5 = 195)

The unit price and quantities for two goods for two years are shown in the table. Assume that consumers are purchasing 8 units of water and 10 loaves of bread. Also assume that Year 1 is the base year. The value of the market basket in Year 1 is $_________________.

28.00 (8*1.00=8.00; 10*2.00=20.00; 8.00+20.00=28.00)

The unit price and quantities for two goods for two years are shown in the table. Assume that consumers are purchasing 8 units of water and 10 loaves of bread. Also assume that Year 1 is the base year. To one decimal place, the inflation rate between Year 1 and 2 is ______________.

30 (130-100=30; 30/100=0.3; 0.3*100=30)

If the labor force is 160 million and the number of employed is 125 million, the number of unemployed equals _____ million workers.

35 (160 - 125 = 35; The labor force equals the employed plus the unemployed)

Now suppose that in the following year, the number of employed increases to 200 million, while the number of unemployed increases to 10 million. What is Flickopedia's unemployment rate now. ____________%

4.8 (200+10=210 labor force; 10/210=0.0476; 0.0476*100=4.76; round to one decimal point=4.8)

What is Flickopedia's unemployment rate? _____________%

4.9 (9.5/195 = 0.048; 0.048*100 = 4.87; round to one decimal point = 4.9)

The unit price and quantities for two goods for two years are shown in the table. Assume that consumers are purchasing 8 units of water and 10 loaves of bread. Also assume that Year 1 is the base year. The value of the market basket in Year 1 is $_________________.

46.00 (8*2.00=16.00; 10*3.00=30; 16.00+30.00=46.00)

What is Flickopedia's labor force participation rate - the percentage of the working age population (population over the age of 16) that is in the labor force? ____________%

65 (195/300 = 0.65; 0.65*100 = 65)

The measure of the purchasing power of what you earn every month is

real income. (Real income is the amount of goods and services that can be purchased with nominal income.)

Match the group used to compute the CPI with the correct description Housing =

rent and furniture

Eight major groups of goods and services are included in the Consumer Price Index (CPI): 1. Food and Beverages (breakfast cereal, milk, coffee, chicken, wine, full-service meals, snacks) 2. Housing (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture) 3. Apparel (men's, women's, kid's clothes, jewelry) 4. Transportation (vehicles, airline tickets, gas, vehicle insurance) 5. Medical Care (prescription drugs, medical supplies, doctor's services, eyeglasses and eye care, hospital services) 6. Recreation (T.V., toys, pets and pet products, sports equipment, admissions) 7. Education and Communication (school tuition, postage, phone services, computers and accessories) 8. Other Goods and Services (tobacco and accessories, haircuts and other personal services, funeral expenses) Using the list of eight groups of goods and services, determine which major group of the CPI the following item belongs to. Instant oatmeal. This is in the ___________ category.

Food and Beverage

Eight major groups of goods and services are included in the Consumer Price Index (CPI): 1. Food and Beverages (breakfast cereal, milk, coffee, chicken, wine, full-service meals, snacks) 2. Housing (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture) 3. Apparel (men's, women's, kid's clothes, jewelry) 4. Transportation (vehicles, airline tickets, gas, vehicle insurance) 5. Medical Care (prescription drugs, medical supplies, doctor's services, eyeglasses and eye care, hospital services) 6. Recreation (T.V., toys, pets and pet products, sports equipment, admissions) 7. Education and Communication (school tuition, postage, phone services, computers and accessories) 8. Other Goods and Services (tobacco and accessories, haircuts and other personal services, funeral expenses) Using the list of eight groups of goods and services, determine which major group of the CPI the following item belongs to. Monthly mortgage payment. This is in the ________________ category.

Housing

Eight major groups of goods and services are included in the Consumer Price Index (CPI): 1. Food and Beverages (breakfast cereal, milk, coffee, chicken, wine, full-service meals, snacks) 2. Housing (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture) 3. Apparel (men's, women's, kid's clothes, jewelry) 4. Transportation (vehicles, airline tickets, gas, vehicle insurance) 5. Medical Care (prescription drugs, medical supplies, doctor's services, eyeglasses and eye care, hospital services) 6. Recreation (T.V., toys, pets and pet products, sports equipment, admissions) 7. Education and Communication (school tuition, postage, phone services, computers and accessories) 8. Other Goods and Services (tobacco and accessories, haircuts and other personal services, funeral expenses) Using the list of eight groups of goods and services, determine which major group of the CPI the following item belongs to. New eyeglasses. This is in the ____________________ category.

Medical Care

Eight major groups of goods and services are included in the Consumer Price Index (CPI): 1. Food and Beverages (breakfast cereal, milk, coffee, chicken, wine, full-service meals, snacks) 2. Housing (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture) 3. Apparel (men's, women's, kid's clothes, jewelry) 4. Transportation (vehicles, airline tickets, gas, vehicle insurance) 5. Medical Care (prescription drugs, medical supplies, doctor's services, eyeglasses and eye care, hospital services) 6. Recreation (T.V., toys, pets and pet products, sports equipment, admissions) 7. Education and Communication (school tuition, postage, phone services, computers and accessories) 8. Other Goods and Services (tobacco and accessories, haircuts and other personal services, funeral expenses) Using the list of eight groups of goods and services, determine which major group of the CPI the following item belongs to. A manicure. This is in the ____________________ category.

Other Goods and Services

Eight major groups of goods and services are included in the Consumer Price Index (CPI): 1. Food and Beverages (breakfast cereal, milk, coffee, chicken, wine, full-service meals, snacks) 2. Housing (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture) 3. Apparel (men's, women's, kid's clothes, jewelry) 4. Transportation (vehicles, airline tickets, gas, vehicle insurance) 5. Medical Care (prescription drugs, medical supplies, doctor's services, eyeglasses and eye care, hospital services) 6. Recreation (T.V., toys, pets and pet products, sports equipment, admissions) 7. Education and Communication (school tuition, postage, phone services, computers and accessories) 8. Other Goods and Services (tobacco and accessories, haircuts and other personal services, funeral expenses) Using the list of eight groups of goods and services, determine which major group of the CPI the following item belongs to. Flea collar for your pet. This is in the _______________________ category.

Recreation

Eight major groups of goods and services are included in the Consumer Price Index (CPI): 1. Food and Beverages (breakfast cereal, milk, coffee, chicken, wine, full-service meals, snacks) 2. Housing (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture) 3. Apparel (men's, women's, kid's clothes, jewelry) 4. Transportation (vehicles, airline tickets, gas, vehicle insurance) 5. Medical Care (prescription drugs, medical supplies, doctor's services, eyeglasses and eye care, hospital services) 6. Recreation (T.V., toys, pets and pet products, sports equipment, admissions) 7. Education and Communication (school tuition, postage, phone services, computers and accessories) 8. Other Goods and Services (tobacco and accessories, haircuts and other personal services, funeral expenses) Using the list of eight groups of goods and services, determine which major group of the CPI the following item belongs to. A motorcycle. This is in the _________________ category.

Transportation

Match the group used to compute the CPI with the correct description Transportation =

airlines fares and motor vehicle insurance

Determine whether this person or group is unemployed and what type of unemployment it is. Jim lost his sales job at the Mercedes dealership because times were tough and people could no longer afford luxury cars. Jim is ______________ unemployed.

cyclically

During a recession, some people trying to find work might become _______________ and give up looking for a position, thereby leaving the labor force.

discouraged

Determine whether this person is or is not in the labor force. A medical doctor is working as a waiter. The doctor is _______________________.

employed

Determine whether this person is or is not in the labor force. Denise stays at home with her children but works as an accountant in a supermarket every Friday and Saturday. Denise is ________________________.

employed

Determine whether this person is or is not in the labor force. Janice is on sick leave from work. Janice is __________________.

employed

The U.S. Bureau of Labor Statistics provides additional price indexes across many different types of goods and services. Typically there is a

large variation in the individual prices indexes for these consumption categories.

When unemployed workers become discouraged, they

leave the labor force and the unemployment rate goes down, even though the labor market is worsening.

Determine whether this person is or is not in the labor force. Alice, who has not worked in a year, took a resume-building workshop to help her prepare for a job search. Alice is currently _________________________.

not in the labor force

Determine whether this person is or is not in the labor force. Due to some illness, Sally is not able to look for jobs. Sally is __________________________________.

not in the labor force

Determine whether this person is or is not in the labor force. In the past four weeks, Joe, who has not worked for two years, searched through some job listings online but did not see anything interesting. Joe is _________________________.

not in the labor force

Determine whether this person is or is not in the labor force. Stan is a 15-year-old student who will apply for a summer job but is currently in school. Stan is ______________________.

not in the labor force

Determine whether this person or group is unemployed and what type of unemployment it is. Many jobs are shifted from the United States to Mexico because labor is available at lower wages in Mexico. This is an example of ________________ unemployment.

structural

Hovana has a labor force of 150 million people, 15 million of whom are currently frictionally unemployed and another 5 million of whom are currently structurally unemployed. If Hovana's actual unemployment rate is 13.3 percent, you can conclude that __________________________.

there is no cyclical unemployment.

Determine whether this person is or is not in the labor force. Now that the children are out of the house, a homemaker has been looking for part-time work for four weeks. The homemaker is _________________________.

unemployed

Determine whether this person is or is not in the labor force. Roger, a 70-year-old retiree who has not worked for five years, has been looking for work again for the past two months. Roger is _____________________.

unemployed